Dear Credit Guy,
I have a credit card with a $5,800 balance. I pay more than the minimum, but the balance never goes down. I have not used the card for more than a year, but because of the finance charge, etc., the balance never comes down. What can I do? Can the new credit card law protect me? -- May

Dear May,I'm not sure what is going on with your credit card account, but let's try to get to the bottom of it. One item in your letter concerns me. It is the three letter word, "etc." You say that you are paying more than the minimum, but are you making your payment on time each month, and is your balance below the credit limit? If you are being assessed an over-the-limit fee or a late fee, then your payment may not cover the interest charge on the balance plus any fees, and that could cause your balance to stay the same or even increase each month.

What I want you to do, May, is take a good look at your credit card statement and find out if you are over your credit limit or are being assessed any other fees. If you are over your credit limit, try your best to pay what is needed to bring the balance below the limit as quickly as possible. The fee added each month will make it much harder to make any headway in paying off your balances.

Just for fun, and so we can stay on the same page, let's do the math together. You did not say what interest rate is being charged on your account. If you are like many other cardholders, you may have several different interest rates on different segments of your total balance. For example, a cash advance balance, a transferred balance and a purchases balance -- all of which could have different interest rates assessed.

Minimum payments vary a lot these days, as some card issuers have hiked them as high as 5 percent of the balance. Another typical minimum payment is "1 percent plus plus" -- that is, 1 percent of the balance, plus all monthly interest, plus any fees. Let's say it's 2.5 percent of your balance. For a $5,800 balance, your minimum payment would be approximately $145, assuming a 12 percent rate of interest, which is about the national average credit card interest rate in August 2009.

For purposes of my recommendation and to keep things simple, we'll use the minimum payment amount as your monthly payment for the following examples: At an effective annual interest rate (all interest rates on the account considered) of 12 percent, if you continued to make the $145 per month payment without adding any purchases or being assessed any fees, you would pay off your balance in 52 months or four years and four months and pay approximately $1,644 in interest.

Many people have a much higher interest rate than 12 percent. If you pay $145 per month at an interest rate of 25 percent, you would have your balance paid off in 87 months or seven years and three months. Pay just $26 more each month for a total monthly payment of $171, and you would pay off the balance in five years. The key is that you must continue to pay the same monthly amount, even when your balance decreases and your minimum monthly payment goes down as well.

Once you straighten out any fees that you may be charged, continue to not add purchases and make a regular monthly payment of at least $145, your balance will come down. I hope you are also putting aside some money in an emergency savings account so that you will not be in the position of relying on credit again and you can remain credit card debt free.

The Credit CARD Act of 2009, signed into law in May 2009, will help you and many other credit cardholders because card issuers will no longer be able to raise interest rates at any time for any reason after February 2010. The new regulations should allow you to pay off what you already owe without the threat of an interest rate increase.

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